Being a financial professional – i.e., a registered representative (RR) – regulated by the Financial Industry Regulatory Authority (FINRA) is not easy. When misconduct is alleged against the RR in a complaint to FINRA, whether brought by a customer or the employing brokerage firm, the system that is set up to resolve such allegations and disputes generally treats the RR, at least initially, as “guilty until proven innocent.” Good luck finding a “neutral” fact-finder willing to listen; instead, you will often find an ambitious FINRA staffer, looking for another notch in his or her belt to help their stats and upward mobility. If and when FINRA decides to bring charges against the RR, it helps to have an attorney who can negotiate a reduced punishment against the RR.
To protect investors and market participants, RRs must abide by the securities laws and FINRA’s rules of conduct. But even when a financial professional follows those rules, every RR knows that they remain at the mercy of both customers and their firms, who, with little effort, whether fairly or unfairly, can very easily file a public complaint to put other customers or firms on notice about the RR.
If a customer files a complaint or arbitration against the RR, the complaint is reported to and logged on the RR’s public record of disclosure within the Central Registration Depository (CRD). Any person with Internet access can then view the pending allegations against the RR by visiting BrokerCheck.FINRA.org, where those allegations can additionally surface with a Google search.
If the RR’s firm files an allegation of wrongdoing against the RR, the disclosure is not as public, but it can still damage one’s career and livelihood because the defamatory nature of the U4 or U5 filing is viewable by all other regulated firms once the employing firm updates the RR’s CRD via a Form U4 amendment or U5. In such instances, the RR who is the subject of such allegations will find it nearly impossible to job search or interview with other firms while there is a pending investigation of any kind. To make matters worse, every complaint or violation reported by customers or firms is reviewed by FINRA Enforcement, who may then step in to levy additional public penalties consisting of suspensions, industry bars, and monetary fines.
For every customer complaint or firm-filed U4/U5 disclosure, there is certainty that FINRA Enforcement has looked at the filing. FINRA Enforcement will decide to open an investigation against you depending on how egregious or clear-cut the violation appears to be. Like any prosecutor’s office, you should expect that FINRA Enforcement is looking to prosecute an “easy” violation; that is, something easy to prove in which Enforcement is likely to prevail should it bring charges against you. Unlike powerful firms with a seat at FINRA’s table, with whom staffers often want a job, the “little guy” RR is looked at as an “easy kill,” especially if they know you are not a huge producer with money to fight them. Defense of an enforcement action can be costly.
Prior to bringing any charges against you, FINRA Enforcement will have likely conducted an investigation of some kind. While an investigation can be initiated quietly, behind the scenes, there are times when you will know this is occurring if you have already received an 8210 Letter requesting documents and information (i.e., similar to a subpoena), sometimes additionally accompanied by a request for you to testify on the record in front of Enforcement. It is important to retain counsel and come out strong from the get-go, as they need to believe you are not an “easy kill” and will fight them.
As FINRA is a self-regulatory organization, there is no threat of criminal liability in a proceeding when a civil action is brought by FINRA’s Enforcement arm; however, FINRA’s Enforcement Department has latitude to separately report any criminal violations to criminal authorities. Either way, a civil action brought by FINRA Enforcement presents a very real threat to your FINRA license and future ability to remain in the securities industry.
Though some lawyers might advise that not responding to a FINRA request for documents or testimony is the right course of action, especially if you have left or intend to leave the industry, one should know that failure to respond will typically result in an automatic bar from the industry with lasting effects. FINRA has continuing jurisdiction over you for two years after you leave the industry, and it will use that power. Sometimes it is easier and less costly to ignore FINRA rather than defending its allegations, especially where you know the allegations to be easily provable. However, the risk of defending oneself in a matter which Enforcement is likely to win can also make public specific facts about the allegations that might, in fact, be better off kept out of the public eye, whether viewed on Brokercheck or found on Google. It is important to assess just how damaging the underlying facts are, as they have the potential to haunt you in your next career. The decision should be carefully weighed with the help of an attorney, as, depending on the underlying facts, it can be just as damaging to your next career if a public search shows you were barred from the securities industry for failing to respond to FINRA Enforcement.
Lastly, it may be most helpful to hire an attorney when FINRA Enforcement advises that it intends to bring charges and specific penalties against you where the conduct alleged is in a “grey area,” where it is unclear, based on the facts, if Enforcement would prevail in a full hearing. Hearings are costly to defend for RRs, but it is also true that FINRA Enforcement’s resources are finite too. Consequently, if Enforcement can get you to accept a proposed punishment without expending the resources to prosecute you, it will do so, often creating the opportunity to “negotiate” for a lower suspension time or monetary penalty. It is to your advantage, thus, to have the proper negotiating leverage by hiring an experienced attorney who is familiar with precedents in other disciplinary proceedings, and who can create doubt or uncertainty with Enforcement about whether it can successfully prevail in a hearing. When being Googled or looked up on Brokercheck, a 10-day suspension looks a lot better than 10 months or a permanent industry bar. A $2,000 monetary fine looks a lot better than $10,000. Often the financial penalty can be further deferred or waived, provided your attorney can demonstrate that it would cause you financial hardship. In such circumstances, the New York attorneys at Malecki Law have successfully negotiated with FINRA Enforcement on behalf of RRs, resulting in lesser punishments and RRs being permitted to either resume their career in the financial industry or to move on to another career with minimal defamatory impact caused by a Google search.
If you are a financial professional who has been contacted or received an 8210 Letter from FINRA Enforcement, call us for a free consultation.